Dubbing the Angara bill as a derailed TRAIN, civil society advocates led by Action for Economic Reforms (AER) urge the members of the Senate to amend the Angara bill in the plenary deliberations and focus on keeping the original proposals of the Department of Finance (DOF) like the higher income tax relief for the working classes; a higher marginal tax rate for the richest one percent; fuel and auto taxes and the removal of VAT exemptions that will generate significant revenue not only to finance education, health and public transportation but also to ensure the funds for the cash transfers for the poor and near poor.

AER criticizes the attempt of Sen. Sonny Angara, Chair of the Senate Committee on Ways and Means to present his proposals as pro-poor with the negligible increase in fuel excise tax in the first year. The group says the lower fuel tax will mean less revenue, thus restricting spending for the poor, and will only benefit the richest 10 percent who consume more than half of total fuel production.

“The reduced rates on fuel tax will mean a slide in targeted revenues from PhP70 billion to PhP40 billion. The Angara bill will limit the unconditional cash transfer to ten million households only, excluding around two million poor households in the 5th income decile, who should be also receiving the transfer,” said Jo-Ann Diosana, an AER economist.

Angara’s Senate Bill 1592 also lowered the non-taxable income to only PhP150,000 from the DOF’s initial proposal of PhP250,000 per year. On the order hand, the marginal tax rate for the richest individuals is cut from the proposed 35 percent rate to 32 percent.

“His income tax proposal will translate into a higher burden for low-income earners in the informal sector, like vendors and service workers. This clearly shows the bias of the bill towards the richest Filipino taxpayers while the low-wage workers and marginal income earners are denied the relief,” Diosana added.

Jenina Joy Chavez, an executive officer of AER, also expresses alarm over the retention of many VAT exemptions and extension of zero-rating to some private interests.

“The generous VAT exemptions can predict what will happen to the rationalization of fiscal incentives—it will likely be watered down, given Angara’s accommodation with respect to VAT exemptions. It shows the bias of senators like Angara to protect vested interests,” said Chavez.

“It is necessary to clean up the VAT system and plug tax leakage by lifting these unnecessary exemptions so that more revenues can be raised for pro-poor spending. Unfortunately, Senator Angara had chosen to kowtow to the interests of a few rather than look after the welfare of the majority,” Chavez said.
In an attempt to augment the revenue targets from TRAIN, the bill includes new taxes from cosmetic surgeries, coal, and dividends. AER said these new measures were inserted in TRAIN even when their revenue potential, economic impact, and, more importantly, their impact on the people’s health and livelihood have not been studied.

Health advocates and medical groups also proposed to Angara to include the tobacco tax increase in TRAIN, which is expected to increase government revenues by P40 billion to P60 billion. But this fell on deaf ears. (END)

With House Bill 5636 or the Tax Reform for Acceleration and Inclusion (TRAIN) well underway at the Senate Committee on Ways and Means, it is crucial to take stock of the studied and evidence that have been presented to lawmakers, and scrutinize their relevance in light of recent developments.

This includes the two industry-commissioned studies by the University of Asia and the Pacific (UA&P), which support an adjusted schedule for the fuel excise tax and a reconsideration of the tax on sugar-sweetened beverages. Though their proposals look sound attractive, comprehensive, and economically sound on the surface, the more than 200-page pair of studies belies major gaps and biases in the analysis that threaten to weaken the most progressive provisions of TRAIN.

A SLOWER BURN FOR FUEL EXCISE?
Despite natural growth in people’s nominal income, gasoline and diesel excise taxes remain unadjusted at P4.35 and P0.00 since 1997. These unadjusted rates have resulted in about P140 billion in annual forgone revenues, and made our tax system less progressive by favoring the richest 10% of Filipino households who consume 50% of fuel in the economy. To correct this, the DoF proposes an increase of at least P6 per liter.

In TRAIN, the proposed increase is staggered to P3 in 2018, an additional P2 in 2019, and a final P1 in 2020. By the first year, about P74 billion will be generated to fund infrastructure, health, education, and social protection measures. Under this proposal, independent estimates show an increase in annual direct expenditure for gasoline, diesel, kerosene, LPG, and lubricant expenditures totaling only P76.06 for the poorest decile while increases in commuting costs will only total P39.8 — both of which will be more than covered by the proposed cash transfers worth P2,400 annually per qualified household.

In contrast, the UA&P recommends an adjusted schedule of P1.75, P2, and P2 over the same three-year period. The idea seems attractive, since by the end of three years the results seem comparable to the original proposal (P6 vs. P5.75). However, this proposal arises from the UA&P estimate using 2012 data, claiming that TRAIN will increase the fuel expenditure of the first decile annually by P1,076. This projection is questionable, given that the first decile’s annual total fuel expenditure does not even reach P500, according to the 2015 Family Income and Expenditure Survey.

Moreover, the UA&P proposal comes with very crucial caveats.

Alongside the lowered rate of P1.75 in the first year, the paper proposes that the threshold for personal income tax (PIT) exemption be lowered to P150,000, rather than the threshold agreed upon both in the House of Representatives and the Senate, which is at P250,000 year. They later on assume the feasibility of a cash transfer worth P3,600 — an amount that was only proposed to match the original DoF proposal of a P6 increase.

The first problem with the watered down fuel excise is that it isn’t viable without drastic adjustments to the other aspects of TRAIN. Lawmakers will be hard-pressed to change the PIT exemption threshold, not to mention that the cash transfers are supposed to come from 40% of the incremental revenues from the fuel tax. The P1.75 rate is nowhere near enough to fund the transfers, let alone any new government programs.

Second, as the diluted fuel excise tax increase threatens the implementation of the cash transfers program, UA&P’s proposal is poised to benefit more the rich (who has guaranteed gains from income tax cut), than the poor, making TRAIN less progressive.

A SUGAR-FREE TRAIN?
House Bill 5636 also proposes a P10/liter tax on sugar-sweetened beverages (SSBs). By raising the price on SSBs, the tax aims to reduce excessive sugar intake, which has been linked to obesity and life-threatening diseases like diabetes. Revenues from the SSB tax will be earmarked for programs to prevent noncommunicable diseases, feeding programs, support for potable water, and support for alternative livelihood programs of sugar-producing regions.

In its analysis, UA&P calculates economy-wide multiplier effects for various interrelated industries, and shows the bill’s potential adverse impact on beverage sales and subsequently on direct and indirect employment. It demonstrates an appreciation for wider-scale impacts of the tax, but they do so unfairly.

First, the UA&P study claims that the gains from SSB revenues, which it estimates at about P38 billion, will be eroded to only P8 billion due to decreased VAT and CIT revenues arising from decreased sales. However, they solely account for decreased VAT and CIT from decreased beverage sales, but completely neglect households’ increased spending (perhaps on other goods) that will result from the increased disposable income all deciles will receive from the cash transfers and the PIT relief. This now increases VAT and CIT revenues from other goods.

Assuming, without conceding, the net P8 billion from SSB tax is correct, there is still clear concession on the part of UA&P that the government revenues stand to be much bigger than current estimates already stand.

Note that based on the country’s experience, excise tax is among the most efficient tax to administer, with 95% of the target collections met on the average. While the UA&P wrongly presents a tug-of-war among the three, in the lens of equity and revenue generation, introducing excise tax is a complement to VAT and CIT given the fact that they result in collections equivalent to only 40 to 50% of their supposed amounts, respectively.

Second, the UA&P study uses the notion of multiplier effects as an economic strawman, portending crippling losses to the economy due to impact on industries, but conveniently ignoring the potential welfare investments from additional government financing for education, health, infrastructure, and social protection. Not to mention it will benefit businesses that often complain of the complexities in the tax system, an issue that tops the list of deterrents to business growth in the country. In short, the study only pretends to be comprehensive but only to the extent of shoring up certain interests.

As former Secretaries of Health and numerous medical associations have pointed out, the SSB tax will have direct effects like reduced sugar consumption to curb obesity and reduce top noncommunicable diseases like diabetes, as well as indirect effects like funding nutrition programs to help the undernourished.

Excessive sugar intake also has economic impacts in terms of health costs, productivity costs, and plunging vulnerable families into poverty. Alleviating these will have their own multiplier effects that benefit all, especially the poor and near poor.

ROUNDING THE FINAL STRETCH
As TRAIN enters its last few sessions with the Senate Committee on Ways and Means, it is important to focus the discussions where they matter most in light of ever-evolving evidence.

For the fuel excise, by keeping the current proposal’s P3 increase in the first year, lawmakers will be able to keep both the PIT exemption and a cash transfer of P2,400 for the poorest 50% of households, all while generating substantial revenue for public transportation, universal health care, and other programs in the pipeline. What matters is whether they will receive the promised income tax relief and cash transfer, which will more than offset inflationary impacts. This is achieved in the P3 case, not the P1.75 case.

As for the SSB tax, by considering a big picture that seriously accounts for its health impacts and complementary measures, a sweet spot may certainly be found. The dichotomy the UA&P study draws between health and the economy is a specious one: first, because health itself is a precondition for a growing and equitable economy, and second, because their economic calculations themselves are incomplete and hence biased.

For a truly progressive tax reform, the evidence on the table must be rigorous, comprehensive, and up-to-date. More importantly, they must approach the tax reform objectively, with the people’s welfare in mind. As TRAIN rounds its final stretch, it cannot risk compromising its key features based on arguments well past their prime; the TRAIN has already left that station.

Madeiline Aloria and Joshua Uyheng are researchers of Action for Economic Reforms

Yellow Pad

I like the alliteration — tattoos, taxes, trains, and terrorists. I will dwell with each subject — all headline news in Digong’s Philippines — and tie them all up.

Let’s reverse the sequence of the topics, and begin with the terrorists.

TERRORISTS
“Will they do a Bobby Sands?”

That was the question that Armando Malay asked Iting, the wife of Mon, a political detainee.

Iting sought Tio Armando’s advice regarding the plan of the political prisoners to stage a hunger strike. The hunger strike intended to dramatize the plight of political prisoners under the Marcos dictatorship and pressure the regime to release prisoners and improve prison conditions.

Iting didn’t know how to answer Tio Armando. To begin, with she didn’t know Bobby Sands. Tio Armando, repeated the question: “Are the political prisoners ready to do a Bobby Sands? Such questioning was typical of a skeptic, the former dean and professor at the University of the Philippines, and the Chair of Kapatid, the organization of the relatives of political detainees. (His son-in-law, Satur, the spouse of my cousin Bobbie, was one of the many detained by the dictatorship).

Bobby Sands was the leader of the detained members of the Provisional Irish Republican Army (IRA) who staged a hunger strike. For the Republicans, Sands and comrades were freedom fighters, but for Margaret Thatcher and the unionists, they were terrorists.

The hunger strikers stirred the Irish and British public and the world to recognize the IRA prisoners as political offenders, not as criminals. Bobby Sands and nine of his comrades died from the hunger strike. The hunger strike nevertheless was a victory not only in improving the prison conditions of the political prisoners, but more importantly, in mobilizing international support for their struggle and advancing the Republican cause.

Tio Armando wanted to convey to Iting and the political prisoners that the hunger strike could only be effective if the protesters showed readiness to die for their beliefs. He insisted that the hunger strike should be real, that the prisoners should avoid playing a game of deception by hiding their food to survive the strike.

What Bobby Sands and his band of freedom fighters (or terrorists) showed was credible commitment. And that was what Tio Armando wanted from the Filipino political prisoners.

TRAINS
Which brings us to the story about trains. Trains have become a flagship of different administrations. But the trains have likewise become sources of controversies. Gloria Arroyo had her failed, corruption-riddled Northrail project. Noynoy Aquino and his Transportation Secretary Jun Abaya had troubles with the maintenance of the Metro Rail Transit and the much-delayed Light Rail Transit line from Baclaran to Bacoor.

The people have not forgotten the quip from former president Aquino, referring to the LRT construction: “At pag hindi ho nangyari ito, nandyan ho si Secretary Abaya na nangangasiwa ng proyektong ito, dalawa na kaming magpapasagasa siguro sa train.” The project remains unfulfilled. Hence, his detractors question him about the promise that he and Abaya would let themselves be run over by a train if the project did not finish during their term.

But then, only the ignorant and the foolish would have taken Aquino’s word for it. The statement was obviously not credible.

Lack of credible commitment also marked the statement of former Speaker Sonny Belmonte when he said that he was willing to be hanged if the freedom of information (FoI) bill would not pass under his speakership. “Bitayin ninyo ako kung matapos ito at hindi pa nakakapasa,” he said. Belmonte (and company) killed FoI, but he did not hang himself.

TAXES
But apart from the Bobby Sands act, what are other examples of credible commitment?

It is in the area of tax reform advocacy that I find examples of the effective use of credible commitment.

During the term of the Aquino administration, the sin tax reform passed because its champions showed credible commitment. The bill was designed to include earmarking of the incremental revenue for universal health care and programs such as medical assistance and health facilities in political and district subdivisions. The earmarking assured the voters and the politicians that the sin tax reform would be to their interests.

When the sin tax bill was being undermined at the bicameral conference committee meeting, Representative Sid Ungab, the Chair of the House’s Ways and Means Committee, privately told Speaker Belmonte that a bad outcome would compel him to resign his chairmanship of the Committee. This would have caused a public uproar. It was a credible threat, leading Speaker Belmonte to instruct those House members compromising the bill to back off.

Today, a comprehensive tax reform bill is being deliberated.

To gain the support of the public, the Department of Finance has included an earmarking provision in which 40% of the additional revenue from the fuel excise tax will be strictly allocated to cash transfers and social protection, and the remainder for infrastructure, health, and education. Such earmarking is a guarantee that the revenue will be put into good use; and that it will not be used for the war on drugs that kills people with tattoos.

TATTOOS
And what about tattoos? They are, for better or for worse, an expression of credible commitment. In many social contexts, tattoos symbolize an association, identification, or loyalty with someone or a group.

In the criminal world, a tattoo identifies gang membership. And the tattoo suggests life-long loyalty. The tattoo marks one for life. Once an Oxo or Sigue Sigue gangster, always an Oxo or Sigue Sigue member, so the saying goes.

The tattoo is a barrier to exit. A gangster could not shift allegiance from Oxo to Sigue Sigue because of the permanence of his tattoo from his original gang. Worse, even if a gangster wanted to leave the world of criminality and find decent work, prospective employers would refuse him if they discovered his criminal tattoo.

And that is Paolo Duterte’s problem. He acknowledges he has a tattoo. It is a credible commitment for something. The question the public asks: To whom is he committed?

Yellow Pad

By Joshua Uyheng and Madeiline Joy Aloria

Over the past few months, Bayan Muna, Freedom from Debt Coalition (FDC) and IBON Foundation, have all rejected and tagged as anti-poor the proposed Tax Reform for Acceleration and Inclusion (TRAIN) or House Bill (HB) No. 5636.

However, upon closer examination of their arguments, the evidence and conclusions they present regarding its impact on Filipino’s welfare do not stand up to informed scrutiny.

Package One of TRAIN aims to lower personal income tax, adjust excise taxes on fuel, automobiles, and sugar-sweetened beverages, and limits VAT (value-added tax) exemptions. These provisions are meant to correct various systemic flaws in our tax system and raise additional investments for education, health, infrastructure, and social protection.

Although it is not surprising to see that TRAIN is unattractive for some — unlike the promise of free education, job generation, or absolute freedom from debt — it is frustrating to see critics resort to questionable assumptions, twist TRAIN provisions, and allow even basic errors in arithmetic to propagate a general hateful sentiment towards tax reform.

BLOATED AND UNSUPPORTED ESTIMATES
Bayan Muna recently released estimates showing that a family earning P300,000 annually would lose P9,829/year from incurring increased costs that would eat up the increased take-home pay from income tax cuts. However, even a cursory look at their estimates shows numerous errors, which, if corrected would revert the projected loss to a net gain of P10,970.

Their estimated inflationary impact on food is double-counted, bloating their figures by P5,240, or more than half of their projected net loss. Next, they used the amount of Pantawid Pasada transfer worth P1,500 as an estimate of how much transportation costs would increase after TRAIN’s passage. This completely misunderstands the measure since the program is not intended for households but for public utility vehicle drivers and operators to remove any reason to hike fares. Bayan also claimed that the VAT exemption removal would mean an additional annual expenditure of P12,960. But only lessors with over P3-million receipts would be VAT-able. Lastly, based on “insider info,” they claimed that electricity prices would increase by 20%, even if only 7% of gross power generation is attributed to oil-based sources.

The IBON Foundation also released estimates of how much the TRAIN would negatively impact selected demographics ranging from rice farmers to construction workers, contrasting it with the gains of corporate executives. Although validating it is not easy due to lack of a detailed methodology, the public has to demand explanation as to why their recent estimates represent a 9-82% jump from their previous estimates released in June.

CONJURING DEAD ENDS
Also common in the analyses of the three organizations is how they conjure up problems which they claim TRAIN fails to address, by ignoring the solutions to these problems already embedded in TRAIN.

TRAIN earmarks 40% of the incremental revenues from fuel excise tax to a targeted support mechanism worth P2,400 annually per qualified household. The proposed transfer to be implemented for four years will employ the Listahanan, a comprehensive database used in targeting the poor for various programs such as PhilHealth and 4Ps.

FDC downplays the transfer’s importance by stating that it is not even close to the expenditure for basic food and non-food needs of a family of five, which totals to P105,336 annually. But the cash transfer is meant to support potential additional costs of higher fuel prices for poor households, not replace household income. Its goal is impact mitigation, not poverty alleviation.

FDC, Bayan Muna, and IBON all estimate TRAIN’s welfare impact without the cash transfer. Including the P2,400 in the calculations results in net benefits for the poorest 50% of households, with the poorest 20% gaining the most as a proportion of their income. But critics refuse to recognize this.

FALSE DICHOTOMIES AND IRONIES
Underlying the confused arguments that Bayan Muna, FDC, and IBON deploy are a number of dichotomies that lead to inconsistent and even ironic positions on TRAIN.

One dichotomy they paint is between tax policy and tax administration. They argue that the government should rather focus on efficient collection of taxes, instead of reforming current policy. But improved tax administration does not simply happen out of nowhere. It entails simplifying existing laws, removing unnecessary ones, and updating flawed provisions — which is precisely what TRAIN aims to do.

They also insist on a dangerous dichotomy between the rich and the poor. In terms of absolute numbers, upper-income deciles will expectedly gain more because they currently pay more taxes. But in fact, in terms of percentage to their current income, it is actually the poorest who stand to benefit the most.

This is not to mention the longer-term gains that the poor will benefit from in terms of free education, universal health care, and vastly improved infrastructure — all of which the tax reforms will be able to fund. In the current proposal, TRAIN will actually benefit all.

MOVING FORWARD
The generation of data is an indispensable tool for policy making.

Using data in formulating and refining policies ensures that specific provisions have basis in reality, and that their effects benefit all.

However, like any tool, data can only be as useful and effective as those who wield it. Without rigorous foundations for our assumptions and calculations, data will have nothing of value to tell us. Without respect, transparency, or a constructive mind-set, we will only see in our tortured data what we have already convinced ourselves is true before even beginning.

The proposed TRAIN certainly deserves scrutiny from legislators and civil society. Because it is such an ambitious set of reforms, a lot is at stake. But it is precisely because so much is at stake that the evidence for and against it be based on facts, not on fear, so that the right adjustments may be made in moving forward for better laws, and ultimately, better lives for all Filipinos.

Joshua Uyheng and Madeiline Aloria are researchers from the Fiscal Policy Team of Action for Economic Reforms.

Isn’t it alarming that too many items are covered by exemption from the value-added tax (VAT)?

Exempted from the VAT are 143 items of goods and services. This complicates the tax administration system, creates opportunities for gaming, narrows the tax base, and facilitates revenue loss.

We thus support the proposal to clean up the VAT exemptions and the Tax Reform Acceleration and Inclusion (TRAIN) as a package.

Cleaning up the VAT exemptions enables us to define our priorities and target the marginalized sectors that truly need the incentives most. Items that do not directly and substantially benefit the poor should not be exempt from VAT. The products consumed by the poor, like food in its raw state, and health and education services should be exempt from VAT.

The tax gap from VAT is 6.5 percent of GDP, the highest among diff types of tax. This should be enough proof that the current VAT system is inefficient. If groups like IBON Foundation, Bayan Muna, Freedom from Debt Coalition and other groups opposing TRAIN insist on addressing tax administration first, they should support these reforms in VAT.

The welfare of vulnerable sectors such as persons with disabilities and senior citizens is important. The revenue generated from the removal of the VAT exemptions will increase resources that can be redistributed to these sectors. Subsidies through the budget or the General Appropriations Act are the effective way to help the vulnerable sectors. What they really need is universal access to public services such as socialized pension, inclusive mass transportation, and the right health care. Hence, these programs will be funded through the tax reform, including the broadening of the VAT base.

Further, VAT exemptions for senior citizens, especially on restaurants, cinemas, etc. benefit the rich and upper class. The poor do not avail themselves of such comforts. They simply cannot afford them. These exemptions only highlight the inequity of our current tax structure.

Cooperatives that produce, sell and distribute raw agricultural products, and those that earn less than Php 3 million a year or 85% to 90% of cooperatives in the country will remain VAT exempt. Vulnerable sectors who are members of cooperatives that fall under these two categories will continue to enjoy this incentive. But isn’t it fair that cooperatives earning tens of millions and even hundreds of millions be covered by VAT?

Failure to rationalize the VAT exemptions narrows the tax base, thereby worsening the revenue leakage and the inequity of the tax structure. (END)

AER submitted this statement to Sen. Sonny Angara, Chair of the Committee on Ways and Means during the hearing on VAT reforms today.

“The best weapon to deter tax evasion is to file criminal cases against the prominent tax evaders and send them to jail.”

This is the statement of Action for Economic Reforms (AER) released to the media today.

AER, which supports the comprehensive tax reform, urges the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to file a criminal case against a prominent tax evader like Mighty Corporation.

“We hope that Finance Secretary Carlos Dominguez and BIR Commissioner Caesar Dulay will take this bold step to show that the government is serious in fighting tax evasion. This will also be a way for government to live up to its commitment to reform the tax system. Filing criminal charges is a credible signal that government is serious about tax administration, which will complement the tax policy measures that require legislation, said Jo-Ann Diosana, AER’s senior economist.

The settlement of the tax obligations of Mighty will amount to about P30 billion, according to the DOF, saying that it will significantly boost the national coffers at a time when the government is meeting the unexpected costs of several calamities.

“We appreciate the effort of the DOF and BIR for nailing the cigarette manufacturer Mighty for tax evasion and imposing a heavy fine on the company. This should serve as lesson for all those engaged in illicit trade and tax evasion. However, learning from similar experiences here and abroad, we believe that the principal instrument to deter tax evasion is by filing criminal charges against prominent tax evaders and having them jailed through due process,” explained Diosana.

AER, along with other health groups and civil society organizations, is asking the Senate to increase the tobacco tax and include the tobacco tax in the current deliberations.

AER supports the DOF’s current tax reform proposals. It was instrumental in the mobilization of civil society organizations, medical doctors and other health professionals, in partnership with the DOF and the Department of Health for the passage of the Sin Tax law in 2012. (END)

AER calls on cause-oriented groups to support tax reforms to fund healthcare, education

Action for Economic Reforms (AER) challenges critics of the tax reform, like Bayan Muna and Freedom from Debt Coalition, to answer how they want to finance the huge requirements for health and education services that they are asking for.

“These critics oppose the proposed excise tax on fuel, tobacco and sugar, but they fall short in providing concrete solutions. They demand efficiency of collection before taxes, yet they resist the reforms that will improve tax administration like the broadening of the value-added tax (VAT) base and the adjustment of fuel taxes to inflation,” said Jo-Ann Diosana, AER’s senior economist.

AER lamented that those opposing the tax reform want money for free education, universal health care, and modernization of public mass transportation, but they do not want new taxes.

“The critics are correct in calling for taxing the rich, but they are not aware that the revenue from taxing the rich, which in fact is included in the tax reform, will still be insufficient to fund the attainment of Ambisyon 2040. All citizens have a responsibility to pay taxes, with those having the ability to pay having to pay more,” Diosana added.
In a statement released to the media today, AER said funding healthcare, education and social protection is most urgent. At the same time, the generous reduction in personal income tax rates which will rightly provide relief to the working class and other income earners will, however, reduce government revenues by P141.4 billion. “In other words, there is no escaping tax reform to fund the development requirements, to recover the loss of revenue from the personal income tax relief and to correct the weaknesses of the tax structure,” AER added.
The fiscal policy reform advocacy group is thus calling on other civil society organizations (CSOs) to change their old approach and take the opportunity to secure tax reform that will fund programs, especially on education, universal health care, social protection, and pro-poor infrastructure projects.

“Statements and actions critical of the tax reform bring publicity but on their own, without concrete, feasible proposals, they’re unlikely to bring about the progressive change in the tax system,” Diosana said.

AER takes note that there is an increasing number of NGOs or civil society organizations that support the tax reform.

Among these is Health Care Without Harm Asia which asked the Senate Committee on Ways and Means to consider fuel excise tax increase as a way of helping address the significant contribution of fuel in the rising greenhouse gas emission caused by fossil fuel. In a position paper submitted to the Senate, the group said the higher fuel tax will help address air pollution by discouraging excessive and inefficient consumption of gasoline and diesel. The group also mentioned the fuel tax increase as an important step to transition the economy to more sustainable, renewable sources of energy. (END)

]]>http://aer.ph/aer-calls-on-cause-oriented-groups-to-support-tax-reforms-to-fund-healthcare-education/feed/06726A response to Winnie Monsodhttp://aer.ph/a-response-to-winnie-monsod/
http://aer.ph/a-response-to-winnie-monsod/#respondMon, 19 Jun 2017 04:42:09 +0000http://aer.ph/?p=6714Winnie Monsod’s recent series of Philippine Daily Inquirer (PDI) columns on the tax reform bill (House Bill 5636 or TRAIN, which stands for Tax Reform for Acceleration and Inclusion) has stirred debate. The position of Action for Economic Reforms, Foundation for Economic Freedom and like-minded groups is that despite the bill’s imperfection (legislation of a difficult reform is almost always a product of compromise), the bill retains the essential good features. For my take on TRAIN, please see “Tax Reform Bill: A Big Advance,” BusinesssWorld, 5 June 2017.

What did Prof. Monsod say? In her PDI column titled “Saving Train (2),” 17 June 2017, Monsod summarized her position: “TRAIN is essentially antipoor. Or prorich. Its net effect is to decrease the purchasing power of the bottom 60 percent of the population and increase that of the top 40 percent (especially the very rich). And the so-called ‘transfer’ measures that are supposed to alleviate this (or compensate the poor) are only for a four-year period, plus the fact that it is not clear how those ‘transfers’ are to be effected.”

In the earlier PDI column dated 10 June 2017 and titled “What I discovered about TRAIN (1),” Prof. Monsod wrote that the transfer program is not a great solution because “a) It will be a bureaucratic and a logistical nightmare….And b) Far worse, it turns out, the transfer scheme does not continue as long as TRAIN does.”

Here is my response to Prof. Monsod’s two columns:

The tendency is to focus only on package 1 of TRAIN. Package 1 mainly consists of the reform on personal income tax (PIT), the broadening of the value-added tax (VAT) base, the correction of the excise tax on petroleum products, and the increase in the excise tax for automotive vehicles. But then, TRAIN is a comprehensive tax reform program. It consists of several packages. The other packages include the rationalization of fiscal incentives, corporate income tax reform, health taxes, mineral taxation, amendment of the Bank Secrecy Law, and tax administration (Joey Salceda’s bill called TARA, which stands for Tax Administration Reform Act). The above-mentioned reforms will not only make the tax system efficient but more importantly, will further enhance its progressiveness (or being propoor).

In the same vein, we agree with Prof. Monsod regarding the imperative of reforming mineral taxation and increasing tobacco taxes. The fact is, they are already part of the comprehensive tax reform, but are found in other packages. The good news is that the Department of Finance (DOF) will introduce all the remaining packages for the next round of reforms. Thus, the DOF is asking stakeholders, including civil society, a “solidly ready” bill on mineral taxation.

On the tobacco tax, the Senate has to deliberate on the bill submitted by the Lower House. It is a weak bill, which even the DOF and the Department of Health oppose, in the sense that the proposed increase in the excise tax is low, and it reverts to the two-tiered rates. Our task then is to push for a higher unitary rate, which will increase revenue to be allocated for health programs and will reduce smoking-related diseases.

REVENUE TRANSFER

On the one hand, Prof. Monsod wrote that “TRAIN is negative for the majority of the people.” On the other hand, and this is what matters, she acknowledges the revenue transfer will be “more than enough to compensate for the losses.”

How then can the tax reform’s package1 be antipoor when the subsistence poor, the poor, and the near poor will have an increase in their income because of the cash transfer? In truth, the combination of the transfer and the PIT reform results in a net income gain for all households—the poor, the workers, the professionals and the middle class—except the richest.

The table below on the effect of revenue transfer illustrates how everyone (except the richest one percent) gains from the reform. The estimates are subject to change. For example, the amount of the proposed transfer can be higher, and the DOF is studying the proposal to have a cash transfer for the unskilled nonpoor. The table does not include the proposed public transportation subsidy (Pantawid Pasada). The essential message, nonetheless, is that the revenue transfer will offset the price effects arising from the excise tax increase from petroleum and the broadening of the value-added tax (VAT). Moreover, the design of the package that combines the transfer and PIT relief will result in a positive change in the take home pay of the subsistence poor, the poor, the near poor, the informal worker, the minimum wage worker, the workers receiving more than the minimum wage, the professionals, and the middle class. (Take note of the last column. The light green shade indicates an income gain. The red color denotes a loss.)

In part 1 of her series, Prof. Monsod asked why those who comprise the sixth decile will not receive the same amount of tax transfer as those who belong to the lower deciles? The basic answer is that the sixth decile does not constitute the poor. Nor the near poor. It is the first five deciles that make up the subsistence poor, the poor, and the near poor. Taking into consideration the Social Weather Stations’ (SWS) self-rated poverty, we see that those who rate themselves poor do not belong to the sixth decile. In the survey for the first quarter of 2017, SWS says that 50 percent of families are self-rated as poor, and 35 percent are “food-poor families.” In short, to quote the Catholic Church, we have a “preferential option for the poor.”

That said, the design of package 1, as the table shows, will have a positive change in the income of the sixth and higher deciles. Those belonging to the sixth decile will not be “left out to dry.”

NO LOGISTICAL NIGHTMARE

Prof. Monsod thinks that the transfer scheme is not the solution. Her reason is that the transfer’s implementation is going to be a “logistical nightmare.” But the government has a Listahanan, a database covering 15.1 million households, generated from house-to-house assessments. The Listahanan is a tool for targeting beneficiaries for social protection. The information or profile covers 15.1 million households. That is equivalent to two-thirds of total Philippine households (15.1 million of 22.98 million households).

In other words, Listahanan already covers two-thirds of the total Philippine households The difficult part of any transfer scheme is having the information for effective targeting. Given that Listahanan has the information for two-thirds of total households, the likelihood of a “logistical nightmare” that Ms. Monsod fears is far-fetched.

Furthermore, the proposed transfer for the sixth to eighth deciles will mainly take the form of a public transport subsidy called Pantawid Pasada. It is a universal subsidy, thus easier to administer. Those using public transportation, regardless of income or class status, will benefit from the subsidy. The program, in fact, has been in place since 2011.

The expansion of Listahanan is important to gather the information for all households, to make social protection interventions—in health, education, pension, insurance, disaster reduction and other goods and services—effective, responsive, and fair. In other words, the tax reform is putting in place a comprehensive, evidence-based social protection program. The longer-term benefits outweigh the costs of doing a census. (Besides, the Listahanan has to be updated regularly).

The transfer’s implementation is likewise simple and straightforward. The recipients, identified through Listahanan, get the cash transfer through accredited financial intermediaries (e.g., banks and remittance centers) that have presence even in the remotest areas. The transfer can be done on a semestral basis.

NEGATIVE INCOME TAX

Prof. Monsod sees the need for a transfer program. Without the transfer, the poor will indeed be worse off. Remove the transfer, the whole tax reform will screw the poor people, to use her term. What she does not like is the bill’s transfer program. She offers an alternative: the negative income tax, which the Bureau of Internal Revenue (BIR) will administer. Note that the negative income tax is essentially a cash transfer program. But the Monsod proposal takes the form of a cash transfer that can lead to a “logistical nightmare.” The transactions costs are high. The poor and those who are already exempted from paying the income tax have to troop to the BIR and submit documents. The system can be gamed; the nonpoor and the rich who do not pay income tax can claim, too. The BIR then has to bear the additional heavy task of doing incomes and means tests and determining who are qualified for the negative income tax.

Still on the transfer, Monsod asked why the transfer is limited to four years. We note that the transfer program is basically a temporary adjustment program. After the third year, the inflationary effect of the petroleum tax and the broadened VAT base will no longer be felt. The effect on inflation for the first year, which can be attributed to the reform, is merely 0.9 percentage point, and will be much less in the next two years. Furthermore, over the medium term, the outcome of the comprehensive tax reform in terms of enhancement of social protection programs, improvement of health and education services, expansion of infrastructure, credit and investor upgrade, and improved macroeconomic conditions will translate into an increase in real income and reduced living costs for the poor and working class.

ADJUST FUEL TAXES TO INFLATION

We believe that Prof. Monsod is not against the reform of the petroleum excise tax and the VAT. In the past, she wrote or spoke about her support for adjusting the fuel tax to inflation and for broadening the VAT base. The petroleum tax and the VAT are tied to the personal income tax (PIT) reform. The individual gains from the PIT translate into significant revenue loss for government, which should be recovered through the increase in the petroleum excise tax and the broadened VAT base. The elements of PIT, petroleum excise tax, broadened VAT base and tax transfer go all together. They are all integral to the reform.

But the VAT and petroleum tax reforms, even if not tied to the PIT reform, make economic sense. Monsod, the economist, is fully aware of the serious problems related to the two consumption taxes. The petroleum tax has not been adjusted to inflation since 1997, resulting in the continuing loss of revenue in real terms. The current bill intends to align the nominal rate to the real rate. Further, the adjustment to real prices will be staggered in three years, thus muting the inflationary effect. The excise tax on oil is also a good environmental tax. It is a tool to address the negative spillovers, arising from carbon-emitting fuel. It goes without saying that the rich are also the main consumers of petroleum. With regard to VAT, the many unnecessary exemptions make the system inefficient, leading to significant revenue loss. Rationalizing the VAT system by lifting the number of exemptions contributes to enhancing tax administration.

ADDRESSING THE INCOME CREEP

Another point raised by Ms. Monsod is that those in the 10th decile will benefit from the income tax reform, thus making the package “prorich.” Our response is that the PIT addresses the “income creep” that has led to the undesirable situation wherein the middle class now pays the highest marginal tax rate. The reality is, the Philippine middle class also belongs to the 10th decile. (To illustrate, automobile owners in the Philippines only make up six percent of total families.) The PIT reform intends to correct the “income creep” by adjusting the taxable income levels to inflation and differentiate the tax rate of the middle class from the richest. In the bill, as an affirmation of the tax’s progressiveness, the top taxpayers will have to pay a higher marginal rate of 35 percent, compared to the current 32 per cent.

We believe that our common ground with Ms. Monsod is vast, and the differences are narrow and resolvable. We thus ask her to join us in securing the essential reforms and correcting the remaining imperfections of the tax reform bill.

]]>http://aer.ph/a-response-to-winnie-monsod/feed/06714Update on the FOI Legislative Battlehttp://aer.ph/update-on-the-foi-legislative-battle/
http://aer.ph/update-on-the-foi-legislative-battle/#respondTue, 18 Apr 2017 07:34:20 +0000http://aer.ph/?p=6701AER was present in all major FOI-related congressional activities, serving as resource person and representative of the R2KRN Coalition.

In the Senate, it was present during the two committee hearings (September 19 and 29).. AER documented and helped organize and mobilize contingents for these events. Last October 19, the bill was sponsored in the senate plenary where members of the R2KRN were present as well.

R2KRN Members with Sen.Grace Poe during the FOI Bill’s sponsorship in the plenary session

In the House of Representatives, AER attended the Committee on Public Information Meet and Greet (September 11), and represented the R2KRN and/or served as resource person during the first committee hearings and TWG meetings (October 11 and November 16). Last February 15, the bills was approved in the committee level. It is currently in the House Committee on Appropriations.

Atty. Eirene Aguila and Ms. Joy Chavez of R2KRN serving as resource speakers in one of the house committee hearings

It is noteworthy that the bills moving in both the Senate and the HoR follow our previous filings. The HoR version is particularly encouraging as it followed R2KRN suggestions to reorganize the flow, and it read better after style editing. In both Houses, no right of reply bill or rider was filed.

]]>http://aer.ph/update-on-the-foi-legislative-battle/feed/06701FOI Practice Workshop for CSOs and Civil Servantshttp://aer.ph/foi-practice-workshop-for-csos-and-civil-servants/
http://aer.ph/foi-practice-workshop-for-csos-and-civil-servants/#respondTue, 18 Apr 2017 07:17:47 +0000http://aer.ph/?p=6698Organized by PCIJ and R2KRN, this August 19-20, 2016 activity discussed the findings from the first round of FOI practice, and how these can be integrated in the FOI manual; modules on how to work on the FOI manual and engage with executive departments; and planning (timelines and outputs). From the WS, different Working Groups were formed to pursue FOI requests in four agencies (DPWH, DepED, DENR and DOH selected based on the breadth of services that they are responsible for, the amount of resources that are lodged in them, and the general interest in their activities.), and a Monitoring Group was created. AER headed the Monitoring Group and was part of another WG. These WG and the MG became the core of the R2KRN FOI Practice Team. A copy of the programcan be viewed through this link:

A WG meeting was called last August 24 to further develop the plans/ideas presented in the workshop, and AER issued regular updates on the progress of the work. The initial round of requests were sent in September. However, it was decided by the group to reboot the practice after the full rollout of the EO on November 25.

To deepen the understanding of the EO, a workshop on Exceptions, FOI Manuals, and Practice (September 28) was called, and covered the following:

On exceptions: OSG listed 156 and DOJ 55, but Atty. Sol Lumba identified 56 exceptions grouped into 11 categories. Privacy provisions constituted the most number of exceptions. On the public interest override, the main issue was the threshold to breach, with separation of powers and personal human right having highest threshold. According to Atty. Lumba, ‘public interest’ was more difficult to assert than ‘personal human right’, and we need to deal with this in a different way (e.g. put in disclosure instead).

We discussed FOI Manual work, using the PCO draft and the basic elements we want seen in a manual. (NOTE: during the Sept. 29 Senate hearing, PCO presented a more developed draft outline, which covered many of our issues.)